United States v. United States Gypsum Co., 333 U.S. 364 (1948)

United States v. United States Gypsum Co.

No. 13

Argued November 14-15, 1947
Decided March 8, 1948
333 U.S. 364

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE DISTRICT OF COLUMBIA

Syllabus

A complaint in a suit by the United States to restrain alleged violations of the Sherman Act charged that the defendants had violated §§ 1 and 2 of the Act by a conspiracy to restrain and monopolize interstate trade in gypsum products. It alleged that the defendants acted in concert in entering into patent licensing agreements; that one of the defendants, dominant in the industry, granted patent licenses and the other defendants accepted licenses with the knowledge that all other concerns in the industry would accept similar licenses and that, as a result of such concert of action, competition was eliminated by fixing the price of patented board, eliminating the production of unpatented board, regulating the distribution of patented board, and stabilizing the price of unpatented plaster. Upon conclusion of the Government’s case, the District Court granted the defendants’ motion to dismiss. On direct appeal to this Court,

Held:

1. The evidence established a violation of the Sherman Act. Pp. 368-386, 388-393, 400-402.

2. The plan of the conspiracy to control prices and distribution was not within the protection of the patent monopoly. United State v. General Electric Co., 272 U.S. 476, distinguished. Pp. 389-391, 400-402.

3. The industry-wide license agreements, entered into with knowledge on the part of licensor and licensees of the adherence of others, under which control was exercised over prices and methods of distribution, were sufficient to establish a prima facie case of conspiracy. Pp. 388-389.

4. Patent exploitation of the kind here attempted is within the prohibition of the Sherman Act, regardless of the motives of the participants. Pp. 391-393.

5. With the conspiracy fully established, the declarations and acts of the various participants, even though made or done prior to the adherence of some to the conspiracy, became admissible against all as declarations or acts of co-conspirators in aid of the conspiracy. Pp. 388-393.

6. When a group of competitors enters into a series of separate but similar agreements with competitors or others, a strong inference arises that such agreements are the result of concerted action. P. 394.

7. Under Rule 52(a) of the Rules of Civil Procedure, a finding of fact by the trial court is "clearly erroneous" when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Pp. 394-395.

8. Where denials by alleged conspirators that they had acted in concert are in conflict with documentary evidence, they can be given little weight, particularly when the crucial issues involve mixed questions of fact and law. Pp. 395-396.

9. The finding by the trial court that defendants had not associated themselves in a plan to blanket the industry under patent licenses and stabilize prices is set aside as clearly erroneous. Pp. 393-394.

10. The provision in the patent licensing agreements for payment of royalties on the production of unpatented board is strongly indicative of an agreement not to manufacture unpatented board; and the testimony in this case is ample to show that there was an understanding, if not a formal agreement, that only patented board would be sold. Such an arrangement in purpose and effect increased the area of the patent monopoly, and is invalid. P. 397.

11. Where the purpose is to prevent competition by uncontrolled resale prices, an arrangement for the elimination of jobbers does not fall within the protection of the patent grant. Findings by the trial court that defendants had not conspired to eliminate jobbers are here set aside. Pp. 397-398.

12. Findings by the trial court that defendants had not stabilized the price of unpatented plaster sold in conjunction with patented board are here set aside. Pp. 398-399.

13. The General Electric case does not authorize a patentee, acting in concert with all members of an industry, to issue substantially identical licenses to all members of the industry under the terms of which an industry is completely regimented, the production of competitive unpatented products suppressed, a class of distributors squeezed out, and prices on unpatented products stabilized. Pp. 400-401.

14. The "rule of reason" is applicable to efforts to monopolize through patents. Pp. 400-401.

15. Even in the absence of the specific abuses in this case, which fall within the traditional prohibitions of the Sherman Act, it would be sufficient to show that the defendants, constituting all former competitors in an entire industry, had acted in concert to restrain commerce in the industry under patent licenses in order to organize the industry and stabilize prices. P. 401.

16. In a suit to restrain alleged violations of the Sherman Act, in which the defendants rely upon patents, the Government is entitled to an opportunity to prove that the patents are invalid. Pp. 386-388.

53 F.Supp. 889, 67 F.Supp. 397, reversed.

The United States brought suit in the District Court to restrain alleged violations of §§ 1 and 2 of the Sherman Act by the appellees. Under the Expediting Act, a three-judge court was constituted to hear the case. Upon presentation of the Government’s case, the District Court dismissed the complaint. 53 F.Supp. 889, 67 F.Supp. 397. The United States appealed directly to this Court under the Expediting Act. Reversed, p. 402.